You’re a DNFBP, Harry

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In light of the new, revised guidelines covering DNFBPs, I’ve come to realize that many people are still in the dark as to what this all means, what their new obligations are, and most importantly, how to go about meeting them. Like many business problems, this can be solved with enough money to hire the right expertise. I’d be a pretty bad AML advocate, however, if I didn’t take this opportunity to provide a bit of education around key concepts in AML and what’s expected of covered entities. I hope to provide enough knowledge and insight to make the next steps clear, but please don’t mistake this post and the ones that follow it to be an adequate alternative to a good AML training program.

Picture this: you’re a real estate broker. You have a nice network of contacts who bring you business. The pandemic’s hit you a bit hard, but you’re surviving. And then you’re told by your lawyer (you have one, right? For contracts and such?) that you’ve got to register with the Anti-Money Laundering Council.

If you think this is a burden, you’re right. This was exactly what Sen. Franklin Drilon (and, to be fair, other senators) objected to when deliberating on the amendments to the Anti-Money Laundering Act late last year:

“If we approve this, all 42,000 real estate agents and brokers will have to do the following: Establish and record the true identity of their clients based on official documents, and maintain a system of verifying the true identity of their clients; record, maintain, and store all documents; and report to AMLC all covered and suspicious transactions,” Drilon said of Senate Bill No. 1412.

Sen. Franklin Drilon, as quoted by the Manila Bulletin

In the end, the Senate capitulated, and real estate brokers are now covered entities under the law.

(Covered entities are persons who have obligations under the Anti-Money Laundering Act and related regulations. They are covered by these regulations, hence the name. In other jurisdictions, they are called obliged entities, so if you’re doing some research online, they mean pretty much the same thing.)

Designated Non-Financial Businesses and Professions, or DNFBP, is a catch-all term for types of professions and industries that, because they are at risk of being used as money laundering vehicles, are covered by the Anti-Money Laundering Act. In the Philippines, this group consists of:

  1. Jewelry dealers in precious metals, who, as a business, trade in precious metals, for transactions in excess of One million pesos (P 1,000,000.00);
  2. Jewelry dealers in precious stones, who, as a business, trade in precious stones, for transactions in excess of One million pesos (P 1,000,000.00);
  3. Company service providers which, as a business, provide any of the following services to third parties:
    1. acting as a formation agent of juridical persons;
    2. acting as (or arranging for another person to act as) a director or corporate secretary of a company, a partner of a partnership, or a similar position in relation to other juridical persons;
    3. providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement; and
    4. acting as (or arranging for another person to act as) a nominee shareholder for another person.
  4. Persons who provide any of the following services:
    1. managing of client money, securities or other assets;
    2. management of bank, savings or securities accounts;
    3. organization of contributions for the creation, operation or management of companies; and
    4. creation, operation or management of juridical persons or arrangements, and buying and selling business entities.
  5. Casinos, including internet and ship-based casinos, with respect to their casino cash transactions related to their gaming operations;
  6. Real estate developers and brokers; and
  7. Offshore gaming operators, as well as their service providers, supervised, accredited or regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) or any government agency.

While the numbering isn’t quite correct, I’ve lifted this verbatim from a deck presented by Atty. Mel Racela to ACAMS, and this likely comes from the AMLC’s new revised implementing rules and regulations.

When we think of covered entities, we don’t usually think of these DNFBPs – well, except for casinos, maybe. And for many years, that was the case. Money laundering was strictly the domain of the financial system.

And then the Panama Papers happened.

The Panama Papers was a massive leak of confidential information from the Panamanian law firm Mossack Fonseca involving documents and client correspondence from as far back as the 1970s. The scope of the leak was so large (11.5 million documents, covering 200,000+ entities) that the journalists to whom it was leaked had to coordinate their efforts to go over the data. The Panama Papers brought many practices to light around the use of offshore corporate entities to obscure the source and ownership of funds. While offshoring funds is legal, some of the companies were used as vehicles for fraud, money laundering and other financial crimes.

An important thing to note is that DNFBPs, like the rest of any good AML regime, are supposed to be adapted to local conditions. So for example, auditors and notaries are DNFBPs in other jurisdictions, whereas in the Philippines they’re not. (They could be, especially if they offer services that would qualify them to be DNFBPs.)

So now that you’re a DNFBP, you have obligations. Let me break them down for you quickly:

From RA 9160, you must:

  • Develop and implement a comprehensive and risk-based plan to prevent money laundering and terrorist financing.
    • Your Board of Directors (or partners, trustees, or owners) shall approve and exercise active oversight of the plan.
  • Designate a compliance officer or unit.
  • Establish adequate screening procedures when hiring employees.
  • Develop and implement a continuing education and training program.
  • Develop an internal audit program.

From the AMLC’s guidelines, you must:

  • Conduct appropriate due diligence on all clients
  • Identify the ultimate beneficial owner of transactions
  • Comply with standard reporting requirements: covered transaction reports and suspicious transaction reports
  • Comply with directives from the AMLC and supervising authorities
  • Cooperate with the AMLC and supervising authorities
  • Develop an ongoing training program for AML/CFT
  • Align procedures with international standards and best practices

I’ll cover these obligations, and how to address them, in later posts.

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